The Founding of the Federal Reserve, the Great Depression, and the Evolution of the U.S. Interbank Network

Financial network structure is an important determinant of systemic risk. This article examines how the U.S. interbank network evolved over a long and important period that included two key events: the founding of the Federal Reserve and the Great Depression. Banks established connections to corresp...

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Bibliographic Details
Published in:The Journal of economic history 2020-03, Vol.80 (1), p.69-99
Main Authors: Jaremski, Matthew, Wheelock, David C.
Format: Article
Language:English
Subjects:
19th century
Bank failures
Banking industry
Central banks
Cities
Correspondent banks
Digitization
Economic history
Founding
Great Depression
Liquidity
Mental depression
Money markets
Regulation of financial institutions
Reserve requirements
Trends
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Summary:Financial network structure is an important determinant of systemic risk. This article examines how the U.S. interbank network evolved over a long and important period that included two key events: the founding of the Federal Reserve and the Great Depression. Banks established connections to correspondents that joined the Federal Reserve in cities with Fed offices, initially reducing overall network concentration. The network became even more focused on Fed cities during the Depression, as survival rates were higher for banks with more existing connections to Fed cities, and as survivors established new connections to those cities over time.
ISSN:0022-0507
1471-6372
DOI:10.1017/S0022050719000792